In recent years India has been undergoing a basic redirection of
its economic and strategic policy. The highly protectionist
economic policies of the past are giving way to attempts to
increase the country's integration into the world market. The
collapse of the Soviet Union has forced India to build closer ties
with pro-Western countries. All these developments mean India is
seeking stronger connections with East and Southeast Asia. The
opening of the Indian economy is bringing new commercial
opportunities for Australia and with India's growing involvement in
the Asia-Pacific and Indian Ocean regions, the affairs of the two
countries are likely to intersect to an increasing extent in the
near future

In the Indian elections of May 1996 no party was able to win a
majority. Parliament was divided into three groupings of roughly
similar size: the right-wing Bharatiya Janata Party (BJP) and two
small allied parties, the centrist Congress Party, and the
populist/leftist United Front. The BJP formed a government but was
unable to survive its first vote of confidence in parliament. A
government was then formed by the United Front (a coalition of
about six major parties and a number of splinter parties and
independents) under the leadership of Deve Gowda, with the Congress
Party agreeing to support the coalition from the outside.

India is a vast country of great social, cultural and regional
diversity. The country's democratic political system has prevented
any one group from monopolising political power, but that diversity
is now becoming the basis for governmental instability. With a
disparate minority coalition in power and an increasingly fractured
electorate, India may be entering an extended period of
governmental instability just at the time when it is undergoing a
major process of economic reform.

Economic reform was seen to be necessary because of the failure
of India's state-directed, protectionist development strategy to
make significant inroads into the country's poverty. Reform was
initiated in 1991 in the wake of a balance of payments crisis. The
reform process so far has been successful in increasing the Indian
economy's exposure to the world market, increasing the flow of
foreign investment and boosting economic growth to over 6 per cent.
There are, however, concerns that reform may have stalled because
of the Government's inability to tackle politically difficult
structural changes.

The Congress Party used to dominate Indian politics. It has
formed most of India's governments and it defined the mainstream
consensus of the post-independence polity-secular politics and a
state-led economy. Congress succeeded because it provided wide
representation for minorities. Since the late 1970s, however,
Congress has been in continuous decline from a grass-roots based
mass organisation to a party dominated by small cliques and
dependent on populist sloganeering for its electoral success. With
the end of the Nehru/Gandhi family's leading role, Congress has not
been able to overcome its leadership problems.

With the decline of Congress, the right-wing BJP has come into
greater prominence. The BJP is the inheritor of a tradition of
Hindu nationalism which has always rejected the Congress vision of
secular politics and the protection of minorities. It has also
exploited dissatisfaction with the apparent failure of India's
state-led economic policies. The appeal of the BJP's Hindu
nationalism remains confined, however, to middle-class, upper caste
Hindus of northern and western India. Its reputation for extremism
has prevented it from building alliances with other parties.

The United Front is made up of a range of disparate parties. It
is composed of parties which could be seen as inheritors of the
original Congress secularist ideas and of parties which are
supported by the marginalised groups of India, whether in caste,
class or regional terms. The rise of this coalition is a reflection
of the growing assertiveness of many of India's minority
groups.

The main challenge for the United Front is to maintain the
momentum of economic reform while keeping to its promises of
promoting social justice. The benefits of economic reform have yet
to be felt by India's poor. Many of the reform tasks ahead of the
Gowda government are difficult ones which will bring immediate
hardship to many of its own supporters. But without changing the
current structure of government spending, which is heavily weighted
towards subsidies to producers and consumers, it will not be able
to find capital for vitally needed investment in education, health
and infrastructure. Major structural change will place strains on
India's democratic system, but India is making significant progress
in economic development without the violence which has overcome
many developing countries.

The federal parliamentary elections in India in May 1996
produced a very uncertain result, with no party able to win a
majority. Voting produced a parliament which was divided into three
groupings of roughly similar size: the right-wing Bharatiya Janata
Party (BJP) and two small allied parties, controlling 194 of the
545 seats, the centrist Congress Party with 136 seats, and the
populist/leftist United Front, a grouping of several parties,
controlling 177 seats. As the largest party in parliament, the BJP
was asked by the President to form a government, but was unable to
survive its first vote of confidence and resigned after twelve days
in power. A government was then formed by the United Front under
the leadership of Deve Gowda, with the Congress Party agreeing to
support the minority coalition government from the outside-that is,
in any key votes such as confidence votes in Parliament.

Doubts about the longevity of the new minority government, made
up of disparate parties and dependent on the support of Congress,
together with the increased fracturing of the Indian electorate,
raise the possibility that India may be entering an extended period
of governmental instability. These are particularly critical issues
because India has, since 1991, been undergoing fundamental economic
reforms which are yet to win popular acceptance and which could
cause strains within the Indian political system.

India has, in recent years, begun to re-examine the assumptions
on which its economic policy has been based. Indian policy-makers
were shaken by the collapse of the Soviet Union in 1991, an event
which ended India's most important international relationship, cut
off one of its major sources of foreign trade and marked the final
shattering of what had appeared to be an alternative model of
economic development. A sense of immediate crisis was created when
the country's foreign exchange reserves fell to critical levels in
July 1991, forcing the government to seek bridging finance from the
World Bank and IMF. The loans were provided on condition that India
undertake a program of economic reform. This combination of
circumstances triggered the beginning of a series of changes in
India's economic policies which were designed to increase the
country's exposure to the world market and to reduce the role of
the state in the domestic economy.

At the same time the realities of the post-Cold War world have
forced India to reorient and broaden its international
relationships. In particular, relations with the United States,
which had sometimes been frosty during the years of the Cold War,
have developed markedly since 1991. India has made efforts to
develop relations with countries in the Middle East and Central
Asia and to cultivate commercial links in Western Europe. There is,
however, still potential for friction in India's relations with
other major powers. Like China, India has shown resentment that its
aspirations to the status of a major world power due not always
receive what it considers to be due recognition. India's efforts to
play a leading role in the South Asian region have, in the past,
led it into conflict with or within neighbouring countries. The
dispute with Pakistan over the disputed territory of Kashmir is a
continuing source of possible regional instability. Both India and
Pakistan are considered nuclear threshold states and both
countries' refusal to sign the Nuclear Non-Proliferation Treaty has
been a cause of international concern.

Recent Indian policy has focused on increasing the country's
involvement, both economically and strategically, in the
Asia-Pacific region. This has been manifested in India's recently
acquired status as a dialogue partner in the ASEAN Regional Forum
and in the Indian Government's lobbying to join APEC. On the
economic front, the increasing openness of the Indian economy has
seen the beginnings of a flow of investment and technology from the
burgeoning economies of South and East Asia, notably Singapore and
South Korea.

From Australia's point of view these changes come at a
propitious time as the country is looking to deepen its involvement
with the countries of Asia. Australia's relations with India have
traditionally been cordial but indifferent, tinged with occasional
suspicions during periods of the Cold War. Trade between the two
countries was fairly low, reflecting the differing structures of
the two economies. In recent years, however, trade between
Australia and India has begun to grow substantially, exceeding $1.6
billion in 1995.(1) While this is still far from the levels reached
with other major economies of the Asia-Pacific, the growth in trade
reflects the emergence of some commercial complementarity between
the two countries.

This paper aims to provide a broader context in which to
understand recent developments in the politics and economy of
India. It examines the origins of the main political groupings and
the reasons for the recent fracturing in the political system and
the increasing difficulty in the establishment of stable majority
government. The paper discusses the challenges presented to a
minority coalition government by the still-unfolding process of
economic reform in India and briefly considers the prospects for
Australia-India relations.

Despite its uncertain outcome, the election of 1996 proved to be
one of the most peaceful and well organised in recent years, and
underscored the basic strength of Indian political institutions.
India is remarkable in being one of the few developing countries to
sustain parliamentary democracy and a lively and open political
life since its achievement of independence in 1947. Western
commentators have tended to analyse every Indian election as a
crisis of democracy, but on each occasion the country's democratic
institutions and political culture have shown their resilience.(2)
Because India is such a huge, culturally diverse country, no one
social group can easily dominate the Indian polity. Representative
democracy has flourished because it has maintained a balance
amongst the various forces competing for political and economic
power.

The very diversity of Indian society has, however, provided the
background to the emerging problems of governmental instability.
India is divided along regional lines: not only between the
northern and southern regions of the country which are
characterised by distinct historical, linguistic and cultural
traditions, but also between the various states of the federal
Indian Union, whose borders are mainly drawn to coincide with
regional languages. To this should be added the differences between
religious communities such as the Hindus (also internally divided
on caste lines), Muslims, Sikhs and Christians, the rural-urban
divide, and class distinctions between the mass of subsistence
peasants and their landlords, together with growing new classes
such as farmers producing for the market, urban workers and the
wealthy business class.(3)

The Congress Party-Dominance and Decline

Despite the country's diversity, Indian politics was for many
years dominated by the Congress Party, and to understand
post-independence India one must understand the central role of
this party. Before the recent election, Congress had been in power
at the federal level ever since independence in 1947, except for
two brief occasions from March 1977 to January 1980 and from
November 1989 to May 1991. Congress inherited the immense prestige
of being the main leader of India's independence struggle: the
Congress flag, only slightly modified, became the flag of the
Republic of India. Congress became one of the key binding political
institutions in the post-independence Indian state, with a strong
network of party organisations extending down to the village level
where the mass of the Indian people lived. Local Congress
politicians were often local landowners and people in traditional
positions of power who used their influence to win votes, and who
promised (and sometimes delivered) benefits to their constituents
through connections in high places. From 1947 until the mid-1970s
many political scientists described India as having a 'one dominant
party system'.

Secular Politics and State-centred Economy

In addition to a strong base-level organisation, Congress was
also able to articulate a vision which dominated political ideas
and debate in post-independence Indian politics. The two key
aspects of this vision were secularism and state-led national
economic development. On the first, given the potential for violent
conflict inherent in India's deep religious differences, the
Congress leadership under M.K. Gandhi (usually known by the title
popularly attached to him of 'Mahatma' or 'great soul') and the
first Prime Minister, Jawaharlal Nehru, maintained a strict
separation between religious and political affairs. Gandhi and
Nehru projected an image of Congress as a protector of the rights
of disadvantaged minorities such as the 'untouchables' (low caste
Hindus) and the Muslims. These latter two groups became key
electoral supporters of Congress. Secondly, Congress economic
policy under Nehru emphasised the role of the state in building up
an industrial base for India behind high protective barriers
against foreign competition. During the 1950s and early 1960s these
policies succeeded in promoting significant economic growth and
were generally supported by the business class, the intelligentsia
and urban workers. Congress policies held out the promise of
economic progress for the poor, with equity in income distribution
for all communities.

The organisational and political dominance of Congress was,
however, not as total as it appeared. Although it won most
elections, it was never able to win a majority of votes. It won a
majority of seats under India's 'first-past-the-post' electoral
system because the opposition parties were so fragmented.
Challengers from the left, in the form of the Socialists and
Communists, gained significant electoral support, but could not
shake Congress from its central position because they really only
offered modified versions of the Congress vision. The left parties
were committed to secularism and would have liked even more state
involvement in the economy. Challengers from the right, mainly
Hindu fundamentalists, had little appeal beyond high-caste urban
Hindus. The small right-wing Swatantra Party had some wealthy
backers, but could muster little electoral support. Although these
left and right parties together won more than 50 per cent of the
vote, they could not unite except in their opposition to Congress:
hence the short tenures of the non-Congress coalition governments
formed in 1977 and 1989.

Indira Gandhi's 'New' Congress

By the late 1960s, cracks had begun to appear in the Congress
'system'. From the mid-1960s economic growth began to falter as the
achievements of autarkic, state-controlled economic growth reached
their limits, and a series of poor monsoons brought hunger and even
famine to large parts of the countryside. These problems emerged
just as popular expectations of economic progress were beginning to
rise and electors were becoming more aware of the power of their
vote. When even illiterate peasants began to vote contrary to the
directions of the local landowner, the power of the village-level
Congress organisation was weakened. In the 1967 election, Congress
won little more than 40 per cent of the vote, and once again was
able to form a government only because of opposition disunity.

The challenge of reviving Congress' fortunes fell to Nehru's
daughter, Indira Gandhi (no relation to 'Mahatma' Gandhi) who had
assumed the leadership of Congress in 1966, following the death of
India's second (and now often forgotten) Prime Minister, Lal
Bahadur Shastri. In what was to prove a fateful decision for Indian
politics, Indira Gandhi took the Congress Party in an entirely new
direction. She perceived that the old party bosses had lost their
power to influence voters and precipitated a split in Congress in
1969 to rid it of the old leadership. Mrs Gandhi did not, however,
rebuild the Party's grass-roots organisation, but based her
resounding victory in the 1971 elections on a direct appeal to
electors using the mass media and populist slogans such as
Garibi Hatao (Abolish Poverty) to tap into the rising
desire for economic prosperity. Symbolic of the dominant role of
Indira Gandhi in the new Congress was its renaming as Congress (I)
(I for Indira). From this time on Mrs Gandhi tolerated no
opposition to her leadership within the party. Internal party
democracy withered as appointments to party posts and preselection
for election became dependent on Mrs Gandhi's support. It has been
observed that she seemed to trust no-one within the Party except
her older son, Sanjay. When Sanjay was killed in a plane crash in
1980, Indira brought her other son, Rajiv, into politics, despite
his reluctance to join public life.

Congress under Indira Gandhi lost the 1977 election in a popular
backlash against the suspension of democratic rights during the
1975-77 Emergency, but regained power in the 1980 elections after
the Janata Party coalition government collapsed. By this time,
however, Congress as an organisation was a shell of its former self
and depended even more on Mrs Gandhi's personal charisma. The
radical-sounding populism of the 1970s was losing its electoral
appeal. Measures such as nationalising the country's banks and
abolishing state subsidies to India's former aristocracy may have
had symbolic attraction, but they delivered little or nothing in
real benefits to the mass of India's poor.

In the place of such populist gestures, Mrs Gandhi attempted to
win the support of those (mainly higher caste and middle class)
Indians who resented what they saw as pandering to minorities.
Congress began to voice rhetoric which had previously been the
monopoly of the Hindu right, such as preserving the rights of
Hindus and defence of the Indian nation in the face of internal
elements such Sikh separatists and external threats such as
Pakistan. While such ideas were popular in a more right-wing
constituency, they cost Congress votes amongst its traditional
low-caste and Muslim supporters, and a hard line against minorities
risked stirring up conflict. Indeed Gandhi paid the ultimate cost
when two of her Sikh bodyguards assassinated her in 1984. The
guards had shared the anger of most of their community when Gandhi
had ordered the Army to storm the holiest of Sikh shrines, the
Golden Temple in Amritsar, to remove extremist Sikh separatists who
were using the building as a sanctuary.

The assassination of Indira Gandhi revealed the extent of the
decay of Congress as a grass-roots organisation and the depletion
of the ranks of its leadership. Party involvement had become
attractive to individuals with a greater commitment to personal
aggrandisement than political principle. With Indira's death there
was no Congress leader of any significant stature, and the Party
found itself with no option but to try to capitalise on the
Nehru/Gandhi name by inducting her politically inexperienced son,
Rajiv, into the leadership. Rajiv benefited from his image as a
youthful fresh face untainted by the reputation for corruption
which marked most other Congress leaders, and in the wave of
sympathy for Congress after Indira's assassination, led the Party
to victory in the 1984 election. As Prime Minister, however, Rajiv
failed to break with his mother's tendency to be intolerant of
independent figures within the Party and became embroiled in
allegations of kick-backs in overseas armament contracts. Congress
was defeated in the 1989 elections, and during campaigning for the
subsequent elections in May 1991 Rajiv was assassinated, leaving a
vacuum of leadership in the Party. The Party's weakness was
exemplified by the serious suggestion that Rajiv's Italian-born
wife, Sonia, who had made no secret of her distaste for political
life, should take up the reins of leadership.

Congress after the Nehru/Gandhis

In the 1991 election Congress once again benefited from a
sympathy vote following Rajiv's assassination, but was barely able
to form a parliamentary majority under the leadership of Narasimha
Rao. Rao was in poor health and was widely seen as a compromise and
transitional figure, but he proved to be a more lasting leader than
generally anticipated, and led Congress through a full term of
government from 1991 until the elections of 1996. The economic
reforms begun under Rao's administration did not really lose
Congress votes, but failed to bring the Party any electoral rewards
because they did not show tangible benefits for most Indians. Rao
made a fitful attempt to reform the Congress Party by holding
internal elections, but abandoned the effort in the face of strong
opposition from vested interests in the Party. His leadership was
generally seen as uninspiring, and faced with growing allegations
of corruption against large numbers of Congress leaders, Rao has
been unsuccessful in stemming the loss of popular support and
respect for the Congress Party. The results of this failure were
evident in the defeat of Congress in the May 1996 elections.

Many commentators, both hostile and sympathetic to Congress,
have concluded that the Party is in a state of terminal decay. It
has been observed that without the assassination of two of its
leaders Congress might not have achieved its last two election
victories. Despite leading the Party to defeat, Rao initially
retained his leadership but resigned as President of the Party in
late September 1996 after he was summonsed to court to answer
allegations of being associated with corrupt business practices.
The fact that the Party could only elect a 'provisional' President,
Sitaram Kesri, while Rao continued to lead in parliament, further
highlighted its leadership problems. Just the same, however,
Congress has been a fixture of Indian politics for more than a
century and can probably maintain a role even while drifting in a
rather directionless manner. The question seems to be whether it
can once again become something more than just one of a range of
competing parties. Much of this, of course, depends on the
activities of its rivals. The following section is therefore
devoted to a examination of these other currents of political
organisation in India.

The BJP and the Hindu Right

The Hindu Nationalist Tradition

While Congress was the largest single party in post-independence
India, and its ideas of secularism captured the mainstream of
debate, there were always rival currents which rejected the vision
of the Indian nation articulated by 'Mahatma' Gandhi and Nehru. The
most important of these was the Hindu right (sometimes called Hindu
fundamentalists) which saw the Indian nation not in terms of a
collectivity of communities but as an expression of Hinduism. They
saw the non-Hindu religions of India, particularly Islam, as
foreign impositions on the country, and argued that their presence
was the result of the past subjugation of India and the forcible
conversion of some of its people from their true native faith.

Such ideas were not without their adherents in Congress itself
and some Congress supporters were quietly in favour of the
partition of India in 1947 as a way of ridding the country of
Muslims. The main expression of the Hindu nationalist current was,
however, found in an organisation called the RSS (initials for a
Hindi name meaning, roughly, National Volunteers' Association or
National Service Squad). The RSS, organised along paramilitary
lines, emphasised discipline and service to the Indian nation,
which of course it saw as a Hindu nation. Because it was an
extremist with RSS connections who was responsible for the
assassination of 'Mahatma' Gandhi in 1949, the organisation was
banned for some time after independence and retained a stigma for
many years. Nonetheless, it retained a committed core of supporters
and with its well-organised cadre structure built up an impressive
political machine which now numbers in the hundreds of
thousands.

The RSS has seen itself as a cultural service movement rather
than a political party, but it has been the inspirational and
organisational core of parties which have openly campaigned on a
Hindu nationalist platform. The first of these, the Jan Sangh
(People's Association), became a prominent opposition party during
the 1960s and early 1970s. Although the Jan Sangh consistently won
less than 10 per cent of the vote, together with other opposition
parties it became the driving force behind a campaign of mass
opposition to Congress which was one of the main reasons for Indira
Gandhi's declaration of the Emergency in 1975.

With the organisational and political decline of Congress, Hindu
nationalist groups began to grow in influence from the late 1970s.
The role of the RSS and the Jan Sangh in opposing authoritarian
Emergency rule broke down some of their political "untouchability"
as far as other parties were concerned. In the 1977 election a
number of Congress MP's joined together with the Jan Sangh and a
couple of centrist parties and formed the Janata Party, roundly
defeating Congress and forming India's first non-Congress
government. The Janata Party coalition collapsed within two years
and Congress regained government in the 1980 election, but the
Hindu right had strengthened itself considerably and reorganised
itself into the Bharatiya Janata Party (BJP) in 1980. The BJP fared
poorly in the 1984 election, but in subsequent polls improved its
position in terms of both votes and seats. In 1991 it won almost 21
per cent of the vote, and although its support hardly changed in
the 1996 election it picked up many more seats and became the first
non-coalition party to win a larger parliamentary representation
than Congress, albeit well short of a majority.

The Strengths and Weaknesses of the BJP

The social basis of the BJP is largely found in the urban lower
middle class of northern and western India. The BJP also gains
support in some rural areas in this region where its leaders from
the former local aristocracy continue to wield influence. Hindu
nationalism has long had currency among traditional merchant
groups; and as India has urbanised, such ideas have spread to the
growing lower middle class, particularly those with a high or
middle caste background. The BJP's main problem is that this strong
support base is also its biggest limitation. Hinduism is a religion
with many manifestations and is socially divided along caste lines.
The version of Hinduism articulated by the BJP has appeal only
amongst high and middle caste groups in the north and west, and is
strongly rejected by many lower castes (especially untouchables).
It finds few adherents at all in the south of the country. Thus
even when winning its largest ever number of seats in the recent
election, it has virtually no representation in the southern or
eastern states, including populous states such as Tamil Nadu and
West Bengal.

The dilemma for the BJP is a choice between appealing to its
core support and thus remaining limited in its social and regional
base, or watering down its ideology to win wider appeal and thereby
alienating its traditional followers. The Party did, for example,
win many supporters during its campaign, during the early 1990s, to
demolish a mosque in Ayodhya in the northern state of Uttar Pradesh
because it was said to be built on the birthplace of the Hindu god
Ram. But the wave of violence which swept parts of the country
after the mosque's destruction in late 1992 turned many potential
voters away from the BJP because of its association with extremism.
Many business people, who as a group had been wooed by the BJP,
were alienated by fears that the Party's campaigns were a source of
political instability which could jeopardise economic activity.
Related to these problems has been the BJP's loss of its previous
image of incorruptibility and discipline. The BJP has campaigned
with claims of being a 'clean' party unsullied by the corruption
associated with Congress, but its record when in government in a
number of states has destroyed much of this popular goodwill. A
reputation for corruption has now reached the highest levels of the
Party at the national level, with several leaders resigning from
parliament before the last election because of allegations of
corrupt practices.(4)

The increase in support for the BJP in recent elections has led
some foreign commentators to see the Party as the future dominant
party in India. With more close analysis, however, one can see the
force of the arguments of other observers who consider that the BJP
may well have reached the limits of its strength. Despite its
growth, the Party remains a party of the north and west of the
country. With the exception of the Shiv Sena, (an extreme
right-wing party in the western state of Maharashtra), the BJP has
not been able to build the alliances with other parties to enable
it to form a coalition or minority government at the federal level.
While the BJP sees its version of Hinduism as the model for all
Hindus (and all Indians), Hinduism is in fact a tolerant religion
whose theological and social diversity is stronger than any attempt
to homogenise it. In fact, attempts by what are seen as upper-caste
northerners to impose their ideas on other parts of the country are
resented and opposed by many Indians, including many Hindus.

The BJP's problems in breaking out of its heartland are
particularly acute because in recent years there has been
increasing politicisation amongst lower-caste and untouchable
Hindus and amongst many regional minorities. These developments
have become part of the driving force behind the third current of
Indian politics which is examined in the following section.

The United Front-The Politics of Caste, Class and Region

In the recent elections neither of the two largest Indian
parties formed a government, but power was assumed by a diverse
coalition of minority parties called the United Front, under a
previously little-known (to foreign observers at least) regional
leader, Deve Gowda. Gowda was Chief Minister of the southern state
of Karnataka and state leader of the largest party in the
coalition, the Janata Dal (People's Party, not to be confused with
the Janata Party which was in power in 1977-80). The diversity of
these parties makes it difficult to outline a complete picture, but
there are a number of common currents amongst these parties which
have made them logical coalition partners.

Parties of the Marginalised

The most important common denominator of the United Front
parties is that their popular support is drawn from many of the
marginalised peoples of India. This may be understood in class
terms since they tend to be peasants, landless agricultural
labourers or urban workers, in caste/religious terms as members of
lower castes or minorities such as Muslims, or in regional terms in
that many are outside the demographic and political heartland of
Hindi-speaking northern India. Recent years have witnessed
increasing assertiveness amongst many underprivileged groups in
both rural and urban India, particularly the development of a
current of low-caste peasant leaders who mobilise supporters on the
basis of caste solidarity. In certain parts of the country one or
two lower castes may form a majority of the regional population and
have come together behind parties which have become dominant within
their home state. The common idea that caste makes people passively
resigned to their fate is becoming decreasingly true, if it ever
had much validity. The current Parliament has a higher number of
representatives from minorities and what are generally called
'backward' groups than at any time in India's post-independence
history.(5)

The Janata Dal draws its support from lower caste peasants and
farmers in a number of states in both the north and south of the
country, together with pockets of trade union support. Many of its
leaders are former Congress politicians who became disillusioned
with Congress because of its undemocratic internal regime and
because of its drift away from secular politics in the 1980s. Many
left Congress during the course of the party's regular factional
and personal disputes. Other Janata Dal leaders were members of the
socialist parties which were important rivals to Congress in the
1960s and 1970s. The Janata Dal has thus attracted many former
Congress voters or those who might have supported more leftish
versions of the Congress vision in the past. It is the United Front
party with the greatest claim to be a national party and it has
most of the experienced national-level leaders. The United Front is
also supported by the smaller of India's two communist parties,
which can also be seen as part of the secular-centrist-leftist
tradition. The larger of the two communist parties, which is
powerful in the states of West Bengal and Kerala, is not part of
the coalition but has promised to support the United Front in key
parliamentary votes.

The Rise of Regionalism

Other constituents of the United Front are strictly confined to
a particular state. In the case of the Samajwadi Party in the large
northern state of Uttar Pradesh, this is because the castes which
tend to support it are mainly confined to that state. In other
cases, the party has become influential because it has been able to
tap into regional sentiment and a sense of separate identity. The
oldest party of this type is the DMK(6) in the southern state of
Tamil Nadu where there has been a long tradition of regional
nationalism. In the 1950s there was a violent agitation in Tamil
Nadu against the attempt to spread Hindi as a national language,
because it was seen as a threat to Tamil identity. Similarly, the
Telegu Desam Party is another regional party which expresses some
of the cultural distinctiveness of another southern state, Andhra
Pradesh. There are also a number of other regional parties from the
smaller states of the Indian Union who have joined the United
Front, including from Punjab, Assam and Kashmir.

Many commentators have questioned whether the United Front
government can survive in the long term or will break up because of
internal policy and personality differences. The precedent of the
previous two non-Congress administrations does not augur well for
the future of the Gowda government, as both collapsed well short of
half a normal term in office. The United Front's greatest weakness
is that many of its leaders are ambitious and individualistic and
have a history of factionalism and party-splitting based on mainly
personalised disputes. Its main asset is that it is made up of
parties which do have philosophical commonalities and whose
supporters come from similar social and economic backgrounds. They
have been able to produce a Minimum Common Program which lays down
a set of political objectives. The Gowda government's prospects for
stability improved when the resignation of Narasimha Rao as
President of Congress ensured that Congress would be preoccupied
with its own internal leadership wrangles.

Apart from the problems inherent in its make-up, the Gowda
government's greatest challenge will be to continue with the
program of economic reform begun under the previous Congress
government while not compromising on what it sees as its special
goal of advancing social justice. Bringing about major structural
reform is a difficult task for any government, but the challenges
are especially acute for policy-makers in a developing country
where the groups that bear the often considerable costs of reform
cannot be ignored because they still have a voice in the democratic
process. The United Front's primary criticism of reform under
Congress was that it was taking place at the cost of the poor and
was focused only on the interests of business and the middle class.
It will therefore be under pressure from its own constituency to
show that there are tangible benefits in the continuance of
restructuring and that the poor will be protected from its
ill-effects.

Maintaining Economic Reform

The economic reforms begun in 1991 were motivated by a growing
perception that the development strategy pursued by successive
Indian governments since Independence had largely failed. India
maintained a growth rate of about 4 per cent during the 1950s, with
stagnation and serious drought during much of the mid-1960s, before
returning to a rate of less than 3.5 per cent during the 1970s.
This performance came to be referred to as the 'Hindu rate of
growth'-not disastrous but far from spectacular and certainly
insufficient to make major inroads to the country's widespread
poverty. There were important achievements during this period: in
particular the food shortages which led to famines during the
droughts of the mid-1960s are now a thing of the past. Increased
irrigation and improved productivity from 'Green Revolution'
farming technology have made India self-sufficient in food and
government-funded poverty-alleviation programs have ensured that
food is distributed to drought areas. Nevertheless, up to 30 per
cent of the population still live below the poverty line as defined
by the Indian government, although even this is an improvement over
the nearly 50 per cent of two decades ago. Poverty remains
especially entrenched in many rural areas and regional disparities
are a major cause of concern, with some areas yet to benefit from
the improvements of recent years.(7)

Economic growth improved during the 1980s, with an average of
over 5 per cent during the decade. The reasons for this improvement
are the subject of debate, but most commentators agree that it was
assisted by the limited reforms to government regulations, the
taxation system and currency devaluation from the mid-1980s.(8) The
enhanced performance of the 1980s came to an end, however, with the
massive foreign exchange crisis of 1991. Balance of payments
problems have been a persistent feature of the Indian economy, with
remittances from Indian workers in the Middle East being relied on
to compensate for the trade deficit and the cost of servicing
foreign loans. This delicate balance was upset by the Gulf War of
1990-91 which brought the combined impact of a sudden end to
remittances and an increase in the cost of imported oil.

With external sources of financing drying up, domestic savings
as a ratio of GDP stagnant at around 20 per cent and imports not
financed by export earnings, the economy was plunged into a
liquidity crisis in early 1991. The Government was left with no
choice but to make a concerted effort to reduce the current account
deficit.(9)

Faced with this crisis, the Rao government agreed to an
IMF/World Bank program of structural adjustment which provided
loans to overcome the immediate financial problems and which
stipulated that the government undertake a number of measures to
open the Indian economy to greater international competition.

Liberalisation under the Rao government concentrated on reforms
in the financial sector and in the investment and foreign trade
regime. Key reforms since 1991 have included:

Encouragement of private sector investment with the abolition
of licensing requirements for investment in most industries and a
reduction in the number of sectors reserved for public
investment;

Elimination of the requirement for large companies to seek
permission for expansion, merger or takeover;

Encouragement of foreign investment, with the ceiling on
foreign equity holdings increased to 51 per cent (up to 100 per
cent in some cases);

Phasing in, from 1991 to 1994, of full foreign convertibility
of the rupee on the current account, with partial capital account
convertibility (this has led to substantial devaluation of the
rupee);

Liberalisation of foreign trade, including replacement of most
import quotas with tariffs, reduction of the maximum tariff from
150 per cent to 65 per cent, and a reduction in the number of
imports subject to licensing requirements; and

Reform of the banking system to bring accounting and management
systems towards international norms and to make the banks (which
are state-owned) more market-oriented.(10)

The clear signs of Government commitment to reform, together
with international concessional finance, quickly overcame the
immediate crisis of foreign exchange and international investor
confidence. The longer term effect has been a steady increase in
the inflow of foreign capital. In 1995 the total capital inflow to
India was over $US22 billion. Foreign direct investment increased
from virtually zero in 1990 to almost $US2 billion in 1995-96.
Portfolio investment increased from less than $US100 million in
1992-93 to $US3.6 billion in 1994-95.(11) Economic growth has been
over 6 per cent in the last two years, and projections have
estimated a 6-7 per cent rate in 1997. Industrial growth has been
around 10-13 per cent in the same period.(12)

Despite these developments, however, it remains to be seen
whether the Indian economy will be capable of sustaining such
growth in the long term and of reaching rates of growth comparable
with the economies of East and Southeast Asia. Increased foreign
investment, while impressive in Indian terms, is still nowhere near
the level experienced by China over the last decade. The poor state
of much of India's transport, power and communications
infrastructure is rapidly emerging as a major constraint on
development and will require massive investment to bring it to
international standards. Despite the encouragement of private
investment, the state sector still retains a dominant position in
basic secondary industry. Most state-owned corporations are
unprofitable and consume large amounts of investment capital, but
their privatisation or restructuring remains an extremely sensitive
political issue. Much of the vital agricultural sector is still at
the mercy of the monsoon, and India's good fortune in experiencing
eight successive good seasons cannot continue indefinitely.(13)

Many international commentators have expressed concerns that the
United Front government might not proceed with economic reform
because of its fragile character and because of its leftist
orientation. Prime Minister Gowda has, however, been quick to
reassure international investors that his government is committed
to further liberalisation of the economy and to attracting foreign
capital. When Gowda was Chief Minister of the southern state of
Karnataka he was well-known for his efforts to promote both foreign
and domestic investment. He was also prepared to tackle politically
difficult issues such as reforming urban land laws-the avoidance of
this issue by other state governments has helped push rents and
land prices in cities such as Bombay to world record-breaking
levels. Bangalore, the capital of Karnataka, is now said to be
Asia's fastest growing city and is home to much of India's
burgeoning computer software industry. Other strong advocates of
reform in Gowda's cabinet include the Finance Minister, P.
Chidambaram, who was actually the Commerce Minister under Narasimha
Rao, and the Industry Minister, Murasoli Maran, who has reportedly
spent most of his brief time as Minister simplifying procedures for
the approval of foreign investment proposals.(14) The government
has, however, been in power for five months at the time of writing
and has yet to undertake any major new initiative in the reform
process. There are signs that foreign investors are becoming wary
that reform has stalled. A recent conference on German investment
in India supported by both the German and Indian governments, for
example, showed continued German investor interest in India but
indicated growing reservation about the continuity of reform. Some
investors express their frustration at the persistence of complex
regulations and slow official decision-making.(15)

Promoting Social Justice

The critical issue for the Gowda government will be to maintain
progress on economic reform while making good on its promises to
promote social justice and the economic uplift of India's poor. In
many ways the Rao government has already completed much of the easy
part of the reform process, mainly financial and trade measures
which pleased domestic and international business interests without
imposing significant social costs. While the new government has
continued with reforms aimed at increasing the level of foreign
capital flowing into India, it has yet to give any indication of a
willingness to undertake changes which would affect the well-being
of electorally-important groups in rural and urban areas.

The most difficult problems confronting the United Front
administration will be fiscal policy and the role of public sector
industry. Prime Minister Gowda, like his Congress predecessor, has
the stated aim of bringing about a major reduction in the budget
deficit, which is currently running at over 5 per cent of GDP.(16)
The issue, however, is not so much the actual level of the deficit
but the fact that much of it is composed of support delivered to
agricultural producers in the form of fertiliser and electricity
subsidies and high procurement prices and, on the revenue side,
exemption of agriculture from income tax. Expenditure reductions in
recent budgets have largely been achieved by cutting development
spending, while outlays on subsidies have continued at the same
level. The wealthier farmers who mainly benefit from these policies
are thought to influence the votes of large parts of the rural
constituency (such as their tenants and labourers) and successive
governments have been loath to interfere with these subsidies, even
though they are costly to the treasury and often distort the
allocation of agricultural resources. The government also provides
subsidies to keep food prices low for urban consumers, a scheme
difficult to cut without a political backlash.

Restructuring of public sector industry is, similarly, a
political as well as an economic problem. The public sector employs
4.9 million people in secondary industry and mining, which is equal
to the number employed in private sector industries of the same
kind.(17) Restructuring of these industries (including in the
private sector where labour laws limit job-shedding) would
inevitably mean the loss of large numbers of jobs, with resulting
social dislocation and political discontent. Concern for members'
jobs has led many trade unions to oppose industrial reform, but
equal and perhaps more powerful opposition has come from the class
of managers and administrators which has grown up around the
post-independence expansion of the public sector.(18)

A few public sector industries are relatively efficient and some
make a profit, but the sector as a whole is poor in terms of
capital productivity, that is it requires large amounts of capital
for a small increase in GDP.(19) This has the effect of crowding
out scarce capital for other investment and pushes up interest
rates, which are currently running at around 15-18 per cent.(20)
These high rates are also exacerbated by government borrowing to
finance the continuing budget deficit. Inflation as measured by the
consumer price index has been in the range of 9-10 per cent in the
last two years.(21)

Apart from the macroeconomic effects of these problems, the
unbalanced allocation of resources to subsidies and public sector
industries makes it difficult for the government to direct
resources into the social spending necessary to promote the
government's stated goals of social justice. One of the most
telling criticisms of the current program of economic reform, based
largely on World Bank/IMF models, is that it concentrates on
macroeconomic settings without taking human resource development
into account. Most examples of successful economic development in
East Asia have been accompanied by high levels of government
investment in education and health which boost labour productivity
and the best use of labour resources. India's performance, on the
other hand, in improving primary social indicators such as
literacy, life expectancy, infant mortality rates and access to
health services has been extremely poor.(22)

While attention to such issues should be high on the agenda of a
government committed to social justice, the structure of government
spending and overall resource allocation in the economy militate
against government investment in education and health. In addition,
the political culture from which many of the parties of the United
Front have come has tended to be preoccupied with short-term
populist schemes (such as subsidised rice by the state governments
of Tamil Nadu and Andhra Pradesh(23)) which appear to benefit the
poor and which reap immediate political gain, but which do not
significantly improve long-term economic opportunity. The first
budget of the Gowda government, delivered in July, was little
different from what might have been expected under Congress,
including cutting spending on development projects to limit the
deficit, rather than by cutting recurrent expenditure on subsidies
or by reforming the tax system. It remains to be seen whether the
Gowda government can regain the momentum of reform lost during the
political uncertainties of the recent interregnum and broaden the
program of restructuring away from narrowly defined macroeconomic
issues towards broader social concerns.

Australia's relations with India have been consistently cordial
but rarely close. Before 1991, relations were sometimes
overshadowed by differing Cold War allegiances, but links were
maintained by shared active membership in the Commonwealth. The
relationship has been characterised by long periods of relative
indifference punctuated by fitful efforts to deepen mutual
involvement. Prime Minister Rajiv Gandhi visited Australia in 1986,
for example, a reflection of the strong personal rapport he
developed with Prime Minister Hawke, but the expressions of amity
and good intentions did not lead to development of substantial new
connections between the two countries. Underlying the lack of
progress was the fact that the two countries' economies had little
complementarity. Australia's traditional strategic, economic and
cultural orientation towards North America and Western Europe also
found little common ground with India's focus on its own region and
the Soviet Union.

Recent years have, however, seen the beginnings of change. The
post-1991 opening of the Indian economy has the potential to enmesh
with Australia's efforts to broaden its already strong links with
the countries of Asia. Trade between the two countries has grown
significantly in recent years, reaching $A1.6 billion in 1995 (See
Appendix).(24) The Indian government's decision in 1994 to reduce
tariffs on coal and wool widened opportunities for sales of these
major Australian export commodities which, in 1995, made up 65 per
cent of Australian exports to India. India's efforts to attract
foreign investment and technology for much-needed infrastructure
development is also presenting openings for Australian business.
Telstra and an Indian partner, the B.K. Modi Group, recently won
the contract to provide cellular phone services in Calcutta. As
well as its telecommunications technology, Australia's mining
expertise has the potential to find a growing role in India, with
the main obstacle being slow progress on reform of India's
restrictive mining regulations.

Australia's trade and investment in India is still very low
compared with the countries of East Asia and further growth will
depend essentially on continuing economic development in India. But
the Australian government will have an important role in ensuring
that the lack of attention to India that has marked past Australian
policy does not allow new opportunities in India to be passed by.
Recognition of the increasing importance of India led the
Australian Government to sponsor a major trade, cultural and
scientific promotion of Australia in India from October to December
1996 (under the title 'Australia-India New Horizons'). Although the
Australian press chose to focus on organisational problems at one
cultural event, the promotion appears to have had some success at
improving Australia's profile in India. The previous Labor
government and now the Coalition government have also recognised
that developments in the Indian Ocean region, especially in South
Africa and India, warrant increased attention as a complement to
Australia's deepening involvement with Pacific Rim countries.

The development of greater economic and strategic ties with
India has only really just begun and, for the foreseeable future
they are unlikely to assume anything like the importance of
relations with East and Southeast Asia. There will be a particular
need for Australia to take account of Indian sensitivities as it
upgrades its involvement in the Indian Ocean region. The Indian
government reacted negatively to Australia's 1995 initiative on the
establishment of an Indian Ocean regional grouping because it saw
the proposal as overly ambitious and the attempt to include
security issues on the agenda as inevitably involving sensitive
issues such as Kashmir and nuclear weapons. The continuance of
significant differences of approach on some key issues was
underscored by the contrary positions taken by Australia and India
over the Nuclear Non-Proliferation Treaty. Nevertheless it would
seem important for the Australian government to give sustained
attention to the Indian Ocean region to ensure that new ideas do
not lapse in the manner that has sometimes characterised
Australia-India relations in the past. The emergence of greater
economic complementarity between Australia and India, Australia's
growing involvement in Southeast and East Asia, and India's efforts
to build greater links in the region suggest that the affairs of
two countries are likely to intersect to an increasing extent in
the near future.(25)

Supporters of economic reform argue that opening India to the
world economy and reducing state involvement in the economy will
promote economic growth and eventually benefit the mass of the
people. While the reforms do appear to have improved growth in the
last two or three years, the fruits of this growth have mainly been
confined to some of the urban middle class. The GDP growth of the
last two years (6 per cent) will have to be sustained well into the
next decade before it has a significant impact on India's poverty.
Whether a government elected on a promise of social justice can
rely on the patience of the people of India is a moot point. It is
unlikely, moreover, that growth will be sustained unless there is
vastly improved access by India's poor to the services which
promote human resource development.

India is entering a period of major change as it turns away from
many of the economic policies which have been part of the consensus
of the country's politics since independence nearly fifty years
ago. Reforming an economy which was structured around high levels
of protection and heavy state involvement is a massive task with
great promise but with many risks. While there is the promise of
benefits for many in the future, there is also the reality of
immediate costs being borne by some who can ill-afford them. Within
a democratic polity these tensions are sure to manifest themselves
in electoral politics and in increasing pressures on the country's
leaders. Most of India's parties are effectively committed to
economic reform, whatever their rhetorical position, but there does
not yet appear to be widespread popular support for the new
policies.

There is usually a mismatch between what politicians are forced
to promise in a democracy and what they can actually deliver in an
underdeveloped economy. Thus many Indian parties have tended to
build their support on irresponsible populist claims or by
diverting people's attention to supposed enemies within, such as
religious or other minorities. In a land as large as India, there
is a danger that these divisions can become as myriad as the many
communities of which the country is composed. The recent fracturing
of Indian politics is, in part at least, a reflection of some of
these realities. On the other hand, it is unlikely that any other
political system could contain the diversity of Indian society and
maintain a tradition of fifty years of peaceful changes of
government. Few Third World countries have made the transition to
developed status without major upheavals and violence. Despite its
problems, and the prospect of instability in the parliamentary
sphere in the immediate future, India appears to have taken some
important steps towards such an historic achievement.

Tamil initials for Dravida Munnetra Kazhagam or Dravidian
Progressive Federation. Although the DMK has support only in Tamil
Nadu, 'Dravidian' refers to the peoples of southern India whose
anguages are unrelated to the languages of northern Indian such as
Hindi, which are more closely related to the languages of Europe.
The DMK also had its origins in an anti-Brahmin movement in he
region dating from the turn of the century, which saw the
high-caste Brahmins as part of the oppression of the Dravidian
peoples by the Aryan invaders from the north.

Department of Foreign Affairs and Trade, Country Economic
Brief: India, June 1996, p.20.

Economist, 27 April 1996, p.22.

For a survey of the problems and prospects for the Indian
economy see, East Asia Analytical Unit, India's Economy at the
Midnight Hour.

Far Eastern Economic Review, 12 September 1996,
p.56.

The Hindu, 5 November 1996, p.16.

Economist, 27 April 1996, p.22.

In 1994, 4.9 million people were employed by the public sector
in industry and mining, with 4.82 million employed in the same
industries in the private sector. Centre for Monitoring the Indian
Economy, India's Social Sectors, February 1996,
p.233.

Far Eastern Economic Review, 9 March 1996,
pp.58-60.

Economist Intelligence Unit, India Country Profile
1994-95, p.18.

Australian Financial Review, 24 September 1996,
p.14.

Asian Business, July 1996, p.35.

United Nations Development Programme, Human Development
Report 1995, pp.155-57. The UNDP Human Development Index rates
India at 134 of the 174 countries listed.

Economist, 27 April 1996, p.23.

This figure omits the important indirect trade in diamonds
between Australia and India which is estimated at around $400
million. The trade is routed through the international diamond
exchange n the Netherlands.

For a comprehensive discussion of Australia's relations with
India see East Asia Analytical Unit, India's Economy at the
Midnight Hour: Australia's India Strategy, 1994 and 'India',
The Australia-Asia Survey, 1996-97, Melbourne, 1996,
pp.181-205.